This comes amid pressure on President William Ruto’s government to address the country’s high debt, currently at Sh8.6 trillion, which continues to eat into the revenue basket leaving a huge budget deficit.
Last week, the President directed a reduction in spending that targeted to save at least Sh300 billion in the 2022/2023 budget.
With little room to borrow and a ballooning public wage bill and recurrent expenditure, the Kenya Kwanza administration could move to merger agencies that have duplicate roles.
This would be part of measures to tame the high wage bill with financial experts projecting the National Treasury’s possible budget cuts to direct funds to critical areas of the economy.
It is expected to be top on the list of National Treasury CS nominee Njuguna Ndung’u as he sets the ball rolling to deliver President Ruto’s economic agenda.
Ndung’u is set to take charge of the National Treasury at a time when the economy is crippled with debt, inflation, joblessness, high cost of basic commodities and hunger.
“It will be fairly obvious that he would need to restructure the budget. At this point, spending is too expensive. There is a point at which you have to divert some spending into priority areas,” Financial Risk Analyst Mihr Thakar notes.
This will lead to some losers within the government budget absorption departments.
According to outgoing Treasury CS Ukur Yatani, the country is targeting to cut the budget deficit by five per cent in the next five financial years to 2026/27 in a bid to ease the debt burden.
The fiscal deficit is projected to decline to Sh862.5 billion equivalent to 6.2 per cent of GDP in the financial year 2022/23, from Sh1.02 trillion.
In the current financial year, recurrent expenditure is Sh2.2 trillion on the projected Sh3.3 trillion, with the government having to borrow to bridge the deficit.
“There are two priorities. One is rationalising the budget and transferring spending to key areas as part of Ruto manifesto and secondly, to bring down the budget deficit by cutting spending,” Mihr explained.
At least 18 state agencies had already been earmarked for restructuring as part of IMF's condition for the $2.34 billion loans granted in April last year.
These are mainly agencies that have remained on the bail-out list of the exchequer year-on-year.
Those with duplicating roles are set to be merged to reduce the wastage of resources.
Some of the ministries with a high number of state agencies include agriculture, transport, tourism, energy, industrialisation, trade and enterprise development, and sports, culture and heritage, which could face a major rationalisation.
A huge number of these entities have remained in losses or yielded low dividends for the government, forcing the exchequer to bail them out.
According to a recent Consolidated National Government Investment Report by the National Treasury, 127 state agencies out of 247 state firms reported losses in their end-year results, with Kenya Railways Corporation hardest hit.
“Some will be merged, some will be dissolved and some will partner. Some we are going to work on structural reforms because, despite their strategic importance, some have serious governance issues,” Treasury said.
Key entities being watched over governance and financial malpractices, and could see restructuring, include the Rural Electricity Authority (REA), Geothermal Development Company, National Cereals and Produce Board and the Kenya Medical Supplies Authority (KEMSA), according to sources within the government.
In tourism, outgoing CS Najib Balala has proposed the consolidation of agencies involved in the marketing and promotion of Kenya into a merged entity called “Promotion Kenya.”
The tourism ministry has at least 13 parastatals among them KTB, Kenya Convention Bureau, Tourism Finance Corporation, Tourism Fund, Tourism Regulatory Authority (TRA), Kenya Safari Lodges and Hotels Limited, Kenya Utalii College, Bomas of Kenya, and the Kenya Wildlife Service Training Institute (KWSTI).
“There is a lot of duplication a lot of wastage. The merger of the sector parastatals will make them more efficient,” Balala said.
He hinted that the next government will be taking up proposals that have already been made.
“We were directed to do a proposal on mergers…we have a process which the next government will take up,” he said.
He had proposed the merger of KTB, for instance, with the National Convention Bureau which is tasked with the conference business.
A reduction in the number of parastatals is expected to come with a revision on salaries and allowances, saving the taxpayer billions of shillings.
It will also reduce pressure on the exchequer which has been pumping billions into bailing out poor-performing entities.
The wage bill is currently at 48.1 per cent of national revenues, which is above the recommended 35 per cent. Of these, 40 per cent goes to allowances.
Parastatal reforms, albeit in a slow motion mainly on political interference, began in 2015 when Presidential Task Force on Parastatals Reforms presented its report to President Uhuru Kenyatta.
It highlighted major reforms on state corporations, including rationalisation to remove overlaps, duplication and redundancies.
At least 26 poorly performing state corporations have also been targeted for privatisation to cut down government spending, mainly continued capital injection.
They include the Kenya Meat Commission, Development Bank of Kenya and Chemelil, Sony, Nzoia, Miwani and Muhoroni sugar mills.
The country has close to 400 State agencies, half of them being regulatory bodies.
